On June 9, 2021, El Salvador’s President Nayib Bukele announced that the country’s Bitcoin bill passed by an “absolute majority” (62/84), making Bitcoin legal tender in the country, making El Salvador the first country ever to adopt Bitcoin as legal tender. Bitcoin has also moved from being a private payment instrument to the level of a country’s fiat currency. According to Article 16 of the country’s bitcoin bill, the bill will take effect 90 days after it is published in the government gazette, which is around September 8, 2021.
There are also reports that following El Salvador, lawmakers in small Central and South American countries such as Mexico and Panama have also claimed to be planning to come up with a bill to include bitcoin within the scope of their legal tender.
Could Bitcoin Become a Foreign Currency?
As soon as the news of bitcoin becoming legal tender in El Salvador came out, some people immediately equated bitcoin with foreign exchange, arguing that in the future, speculation on bitcoin is speculation on foreign exchange. However, such a statement is debatable.
Article 3 of the Regulations of the People’s Republic of China on Foreign Exchange Management defines what “foreign exchange” is. According to this article, foreign exchange refers to the following means of payment and assets expressed in foreign currency that can be used for international settlement.
(a) foreign currency notes, including banknotes, minted coins.
(B) foreign currency payment documents or payment instruments, including bills, bank deposit certificates, bank cards, etc.
(c) Foreign currency marketable securities, including bonds, stocks, etc.
(iv) Special drawing rights.
(V) other foreign exchange assets.
As can be seen, our country “foreign exchange” definition has three elements: first, is expressed in foreign currency; second, can be used for international settlement; third, is a means of payment or assets.
Let’s look at the first and third elements. As far as the first element is concerned, El Salvador is only a country with a population base of 6.42 million people, but it is still a sovereign country with which our country officially established diplomatic relations in 2018. Since Bitcoin is recognized as legal tender by one or even more sovereign countries, it will be relatively smooth to obtain the status of “foreign currency”. Conversely, if a country or region with which we do not have diplomatic relations adopts a virtual currency as legal tender, it is likely that it will not be recognized by our country. Although, unlike traditional fiat currencies, Bitcoin’s credit is not based on national sovereignty, Bitcoin’s credit is actually far stronger than the credit of some small countries that issue their own fiat currencies.
In terms of the third element, the PRC Foreign Exchange Regulations were amended in 2008, and the law always lags behind; the lawmakers back then clearly did not contemplate the future emergence of digital forms of currency. Therefore, the four specific situations listed in the article do not include digital currency. However, the article leaves room for possible new forms of payment or assets to emerge in the future through the fifth category, “other foreign exchange assets. Thus, Bitcoin could satisfy this requirement as an “other foreign exchange asset”.
The main obstacle to Bitcoin becoming a foreign exchange asset is the understanding of the second element, i.e., that it is “capable of being used for international settlement”. The understanding of this element can be further broken down into a real level and a contingent level, that is, first, whether bitcoin has actually become a means of payment for international settlement, and second, whether bitcoin should become a means of payment for international settlement.
On the practical level, the requirement of “capable of being used in international settlement” requires that foreign currency be widely circulated internationally in order to be a foreign currency. In addition to El Salvador, several countries or regions around the world have recognized bitcoin as a means of payment and require digital currency exchanges to do their part in anti-money laundering and anti-terrorist financing, including Germany, Japan, Singapore, and the United States. However, although Bitcoin can be circulated worldwide based on its blockchain characteristics, its circulation is de-banked, meaning that it is not exchanged in circulation within the financial banks of each country. In this way, whether the use of bitcoin as a foreign exchange can serve as a corresponding buffer for international trade is open to further discussion.
On a contingency level, there are also doubts as to whether bitcoin should be a means of international settlement. On June 11, Pieter Hasekamp, director of the Netherlands Bureau of Economic Analysis, published an article titled “The Netherlands must ban Bitcoin,” demanding that the Dutch government immediately ban the mining, trading, and holding of Bitcoin altogether. coins. In his article, he cites many common objections to Bitcoin, such as Bitcoin security issues, the risk of fraud and scams, as well as Bitcoin money laundering and the ease with which it can be used as a criminal tool, and points directly at Bitcoin as a means of payment. BIS representative Benoit Coeure also stated that Bitcoin has not passed the “test as a means of payment” and called for more regulatory measures to be put in place.
In summary, in the foreign exchange space, bitcoin is currently more of a medium for exchanging foreign currency than a foreign currency itself. It is premature to equate bitcoin directly with foreign exchange, both in theory and in practice, and a number of issues need to be responded to and addressed.
What if Bitcoin is identified as a foreign exchange?
The above question of whether bitcoin is a foreign exchange stops at the theoretical discussion, and our country is still taking a more negative attitude towards the payment properties of bitcoin. However, it is certain that if one day in the future China recognizes bitcoin as a foreign currency or even foreign exchange, there will be a chain of legal consequences.
First, bitcoin will be protected by criminal law as a form of property, and theft of bitcoin will constitute a crime of theft. Although there is a difficulty in determining the value of bitcoin with high volatility, it is not insurmountable. The authorities can make a value determination by referring to the fair price of bitcoin on the major exchanges, while incorporating principles that favor the defendant.
Second, Bitcoin will be clearly defined as a “fund” and “currency”, and the illegal absorption of Bitcoin will constitute an illegal fundraising crime. Bitcoin as a medium for virtual currency trading business will also be considered as a fund settlement business, which requires registration and license according to the law, otherwise it will be considered as “illegally engaging in fund payment and settlement business” and constitutes illegal business operation crime.
Again, according to Article 3 of the Measures for the Suppression of Illegal Financial Institutions and Illegal Financial Business Activities (State Council Decree No. 247) issued by the State Council in 1998 and amended in 2011, illegal financial institutions refer to those financial institutions that are established without the approval of the People’s Bank of China to engage in or mainly engage in deposit-taking, loan issuance, settlement, bill discounting, fund lending, trust and investment, financial leasing, financial guarantee, foreign exchange trading, etc. financial guarantee, foreign exchange trading and other financial business activities. If bitcoin is considered a foreign exchange, institutions that conduct bitcoin trading without approval would be considered illegal financial institutions and would be banned, and would constitute the crime of establishing an unauthorized financial institution.
Finally, if bitcoin is deemed to be foreign exchange, bitcoin trading practices and trading platforms will be subject to strong regulation under the Foreign Exchange Management Regulations, such as no transfer of domestic bitcoin outside of China in violation of the regulations, no remittance of bitcoin into the country in violation of the regulations, no carrying bitcoin into or out of the country in violation of the regulations, no private trading of bitcoin, no trading of bitcoin in disguise, no operating bitcoin settlement business without approval, etc. Violations will constitute administrative violations or even corresponding criminal offenses.
Write at the end
The news of El Salvador declaring bitcoin as legal tender has stirred up a lot of enthusiasm in the cryptocurrency community. Indeed, Bitcoin becoming legal tender has been one of the dreams of digital currency geeks. However, it is important to note that centralized legal regulation has always been as close to the BTCer as the distributed ledger. Digital currency practitioners should be proactive and have the foresight to do a good job of compliance in order to rationally face the future dynamics of Bitcoin.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/will-btc-be-treated-as-a-foreign-exchange/
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